Sunderland housing group Gentoo has been slammed by a Government watchdog for the way it has handled executive pay-off deals.
The company has been downgraded by the Homes and Communities Agency (HCA) after a report said it “does not meet our governance requirements” before adding that there are “issues of serious regulatory concern”.
The company’s chief executive John Craggs left his role last week after resigning,
There has been no indication of which executives the report relates to.
It comes after Gentoo announced in October 2015 plans to cut 330 jobs, which was 18% of the workforce.
Gentoo has recently appointed Keith Loraine OBE as its chairman, who has said he is “bitterly disappointed” at the announcement.
The report reads: “The regulator has considered evidence gathered as preparation for an In-Depth Assessment and further information provided by Gentoo.
“The regulator lacks assurance that the board has maintained effective control and exercised its role with appropriate skill or diligence.
“The board has failed to ensure adequate control and scrutiny in discharging its responsibilities.
“It has lacked effective oversight and an appreciation of risk in discharging its responsibilities in line with its own governing documents and scheme of delegation.
“It has failed to ensure that governance arrangements were operating at the most basic level.
“During a significant period of restructuring the board exercised weak governance and internal control when agreeing executive contracts and severance payments to outgoing executives.
“In doing so, the board has failed to safeguard its reputation, and that of the sector.”
It added: “The board has been going through a period of significant renewal and having identified issues when finalising the 2016/17 financial statements the chair designate promptly brought this issue to the regulator’s attention and commissioned an independent investigation into the circumstances.
“The regulator has concluded that the board has failed to exercise adequate control or fully assess the risks associated in agreeing executive contracts and severance packages.
“The roles of the remuneration committee and board in scrutinising and agreeing matters of executive pay lacked clarity and transparency and as a result proposals were not diligently scrutinised and challenged.”
Gentoo operates principally in Sunderland, where the group is based in Doxford Park, and it has small numbers of homes in Northumberland, Redcar and Cleveland, and South Tyneside.
It owns and manages approximately 29,000 homes the majority of which are for general needs.
In addition, it has approximately 900 leasehold and affordable home ownership properties.
As of March, Gentoo employed 1,343 full-time staff (full time equivalents) and its consolidated turnover in the 2016/17 financial year was £193.3million.
Gentoo ‘bitterly disappointed’ by downgrade
In a statement Gentoo chairman Mr Loraine said: “The Gentoo Group Board recently identified a legacy issue concerning a governance matter that we immediately self-reported to our regulator the Homes and Communities Agency.
“This matter related to the governance of executive remuneration under previous leadership and in particular, a severance payment made to a senior staff member.
“As a result, the regulator informed us that our governance grading was under review and has now subsequently downgraded Gentoo to G3.
“We are bitterly disappointed that this flaw in past governance practices has led to this downgrade.
“Our historical checks and internal controls in this area have been found to be inadequate.
“We are now seeking further legal advice about the possibility of obtaining redress or recovery.
“Such payments are not in keeping with the Group’s ethics as a responsible business, and it will not happen again.
“We intend to commission further external advice targeted on any weaknesses in our governance structures, and in particular to look at delegations and authorisations.
“Our business plans continue to deliver excellent services to our customers and we are developing approximately 200 new homes every year, under our subsidiary Gentoo Homes.
“The Group remains financially strong and our financial viability grading remains unchanged.
“I’d like to stress that this is a governance matter and for our customers in Sunderland, our day-to-day service delivery remains unchanged.
“For our staff and customers it is very much business as usual.
“We fully anticipate a speedy recovery from this setback and are working hard with the HCA to ensure a return to an improved governance grading as soon as possible.
“I have every confidence in our ability to deliver positive and effective, lasting change.”
Council wants to see issues resolved
A spokesman for Sunderland City Council said: “As the local housing authority, the city council has regular dealings with Gentoo, which is the city’s largest registered provider of social housing, but it has no control over Gentoo’s day-to-day and internal operations.
“It wants to see Gentoo resolve internal issues and work with it so that tenants can retain full confidence in their landlord.
“In addition, as the city’s largest housing provider, the council wants Gentoo to continue its key role in developing, upgrading and securing further housing opportunities for Sunderland.”
Niall Hodson, leader of the Liberal Democrat group on Sunderland City Council, said: “This judgement makes for really alarming reading, and it’s clear that urgent changes are required in the way that Gentoo is run.
“The report makes particular criticism of Gentoo’s governance arrangements and a lack of scrutiny and oversight.
“Perhaps the most damning indictment from the HCA is that “weak governance” has led to exorbitant executive contracts and pay-offs, with the board simply waving these things through.
“It is not acceptable for a social housing provider to be so inadequately managed.”
Conservative leader on the council, Coun Robert Oliver said: “As the main social housing company in Sunderland it will be a concern to tenants that Gentoo has been downgraded in this way, and clearly the leadership of the company has been too weak in regard to severance payments.
“It is also unacceptable that some homes managed by Gentoo in the city do not meet the Decent Homes standard and questions must also be asked about the role of the council’s representatives on the board.”